CHAPTER 1 1 Scarcity Choice and Cost Scarcity is thecondition of having to choose among alternatives Scarce good good for which the choice of one alternative requires that another be given up Free good good for which the choice of one use does not require that another be given up o i e when you use gravitiy it does not prevent your neighbor from using gravity Opportunity cost the value of the best alternative forgone in making any choice Scarcity and the Fundamental economic questions What should be produced How should goods and services be produced For whom should goods and services be produced 2 1 The Economoic Way of thinking Distinguishing features between the economic and the social science approach to choice o Economists give special emphasis to the role of opportunity costs in their analysis of o Economists assume that individuals make choices that seek to maximize the value of choices some objective o Economists argue that individuals pay attention to the consequences of small changes in the levels of the activities they pursue Economists argue that an understanding of opportunity cost is crucial to the examination of choices Benefit of the economic way of thinking o It pushes us to think about the value of alternatives in each problem involving choice Choice at the margin decision to do a little more or a little less of something Margin current level of an activity The elements of opportunity costs maximization and choices at the margin can be found in each of two broad areas of economic analysis o Microeconomics branch of economics that focuses on the choices made by consumers and firms and the impacts those choices have on individual markets o Macroeconomics branch of economics that focuses on the impact of choices on the total or aggregate level of economic activity 2 3 Putting economics to work Economics majors have a wide range of employment opportunities Careers o Economists work in government for businesses and in colleges and universities Applying economics to other fields o Undergraduate work in economics serves as excellent preparation for law school o Average salary offers for eco majors are among the highest across the disciplines 3 The economists tool kit Variable something whose value CAN change Constant something whose value does NOT change Scientific method systematic set of procedures through which knowledge is created Hypothesis assertion of a relationship between two or more variables that could be proven to be false Theory hypothesis that has not been rejected after widespread testing and that wins general acceptance Law theory that has been subjected to even more testing and that has won virtually universal acceptance Model set of simplifying assumptions about some aspect of the real world 3 1 Models in Economics
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